US macro: trade war unlikely to have a big impact on US inflation - ABN

Bill Diviney, an analyst at ABN Amro explained that the US core inflation in June printed in line with expectations at 0.2% mom, or 2.3% yoy (up from 2.2% in May). 

Key Quotes:

"A cooling in shelter inflation, which rose just 0.1% mom, was offset by strength in medical services (+0.5% mom), and a partial unwinding of earlier weakness in used cars (+0.7% mom). Core inflation has recovered considerably over the past six months, but we continue to see little sign of labour market tightness exerting upward pressure on core services inflation, and nor do we expect it to in the near term."

"As such, while it gives the Fed greater confidence to continue gradual rate hikes, the firming in inflation is unlikely to spur more aggressive tightening."

"The prospect of a more broad-based implementation of import tariffs poses some upside risks to core goods inflation, but this component makes up a relatively small weighting in the core CPI and PCE baskets at c.20% (the remainder being housing, medical, and other services)."

Meanwhile, the proposed tariff rate on $200-400bn of imports from China is relatively modest, at just 10%, with much of this likely to be offset by currency moves (the USD has appreciated 6.5% vs the CNY in recent months)."